A couple of months ago D. Kumaran and group published a paper on the formation of concepts and this was reported (here) and (here). The hippocampus appears to form concepts and the prefrontal cortex seems to use them in decision making.
The ability to use prior knowledge when dealing with new situations …. is made possible through the use of concepts, which are formed by abstracting away the common essence from multiple distinct but related entities. “Although a Poodle and a Golden Retriever look very different from each other, we can easily appreciate their similar attributes because they can be recognized as instances of a particular concept, in this case a dog.” … It has long been suggested that the hippocampus, a brain structure critical for memory formation, plays a critical role in the acquisition of conceptual knowledge. …Dr. Kumaran and colleagues designed an experimental paradigm that would allow them to track the emergence and application of conceptual knowledge.
Participants played a game in which they had the opportunity to win money by correctly predicting whether it would be sunny or rainy based on the appearance of the night sky, denoted by patterns on a computer screen. Early on in the experiment, participants simply memorized the outcome associated with each pattern in isolation. However, they quickly noticed that groups of patterns were conceptually related, much in the same way as Poodles and Golden Retrievers. By structuring the problem in this fashion, participants were able to solve the task, and even successfully apply their knowledge to a different setting where the concepts were similar but the patterns themselves new.
By using parallel behavioral and neural measures, the researchers found that a functionally coupled circuit involving the hippocampus and ventromedial prefrontal cortex underpinned the emergence of conceptual knowledge. Interestingly, however, it was the hippocampus alone that predicted which participants would be able to successfully apply the concepts they had learned to a visually novel setting. “What this suggests is that perhaps the hippocampus creates and stores these concepts, and passes this information to the prefrontal cortex where it can be put to use, for example in making choices where financial reward is at stake.”